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This chapter discusses the key aspects of accounting for a nonpublic company's stock-based compensation awards. There are multiple definitions of a "nonpublic company" in US GAAP. ASC 718 contains a specific definition for purposes of applying stock-based compensation guidance, which may result in a conclusion on the company's status that differs from that applicable for other aspects of the entity's accounting and reporting. For purposes of applying ASC 718, the definition of a nonpublic company is included in ASC 718-10-20.

ASC 718-10-20

Nonpublic entity: Any entity other than one that meets any of the following criteria:

  1. Has equity securities that trade in a public market either on a stock exchange (domestic or foreign) or in an over-the-counter market, including securities quoted only locally or regionally
  2. Makes a filing with a regulatory agency in preparation for the sale of any class of equity securities in a public market
  3. Is controlled by an entity covered by the preceding criteria.
An entity that has only debt securities trading in a public market (or that has made a filing with a regulatory agency in preparation to trade only debt securities) is a nonpublic entity.

In accordance with this definition, an entity with only publicly traded debt securities is a nonpublic company under ASC 718, and a subsidiary of a public company is considered a public company. Additionally, an entity controlled by a public company (e.g., a subsidiary controlled by a private equity fund that is controlled by a public company) is considered a public company. In assessing the second criterion of this definition, “making a filing” with a regulatory agency includes both a public filing of a registration statement or periodic Exchange Act filing as well as a confidential submission of a registration statement with the SEC as part of preparing for an initial public offering (for example, under the JOBS Act), even if such document is not legally considered “filed” under the securities laws. See SC 1.3 for further guidance on the definition of a public versus nonpublic company.
Most of the provisions of ASC 718 that apply to public companies also apply to nonpublic companies. This chapter discusses the specific differences and other issues unique to nonpublic companies, including measurement, accounting for mandatorily redeemable financial instruments, and accounting for book value plans. This chapter also addresses the implications of transitioning from a nonpublic to a public company and the classification of awards provided to employees of "pass-through" entities.

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